TDS on Sale of Immovable Property: How to Remove 20% Demand

TDS on Sale of Immovable Property: How to Remove 20% Demand under Section 194-IA Due to PAN–Aadhaar Linking Issue – CBDT Circular 9/2025 Explained

I. Introduction and Background

After the publication of my previous article on CBDT Circular No. 9/2025 dated 21st July 2025, I received a large number of specific queries from taxpayers, deductors, and fellow professionals. The recurring question was:

“How do we deal with CPC-generated TDS demands in cases where tax was deducted under Section 194-IA (TDS on sale of immovable property) but the seller’s PAN was not linked with Aadhaar at the time of filing Form 26QB, and later the PAN was linked?”

In such cases, the Income Tax CPC automatically levied deduction at 20% under Section 206AA (due to “inoperative PAN”), even though the correct statutory rate is 1%. This led to unwarranted demands and mismatches in Form 26AS.

Circular No. 9/2025 was intended to address such issues. Hence, this follow-up article specifically focuses on 194-IA transactions (real estate sales) and explains how to resolve such demands in light of CBDT’s clarifications.

II. Problem Area – Section 194-IA and Inoperative PAN

1. Statutory Position of Section 194-IA

• Applicable to purchase of immovable property (other than agricultural land) where consideration exceeds ₹50 lakh.
• Buyer must deduct TDS @1% at the time of payment or credit.
• Deposit through Form 26QB and issue Form 16B to the seller.

2. Issue with Inoperative PAN

• When the seller’s PAN is inoperative due to non-linkage with Aadhaar (Rule 114AAA), the system defaults to Section 206AA, deducting at 20%.
• Consequently, the buyer faces a demand in Form 26QB processing under Section 200A.
• Even if PAN is later linked and becomes operative, the demand persists.

3. Resulting Hardship

• Seller suffers excess TDS credit at 20% (instead of 1%).
• Buyer faces CPC notices for short deduction liability.
• Unnecessary litigation and refund delays are created, despite later compliance.

III. Legal Framework

1. Rule 114AAA of Income-tax Rules, 1962

• Any PAN not linked with Aadhaar by notified date is deemed inoperative.
• Consequences include:
  • Higher TDS/TCS @20% under Sections 206AA & 206CC.
  • No refund issuance, or denial of interest on refund.
  • Processing delays in ITRs.

2. Section 206AA of Income-tax Act, 1961

• Mandates TDS at 20% where the deductee does not furnish a valid PAN.
• System applies this automatically during CPC processing.

3. Earlier CBDT Circulars

• Circular 3/2023 (28.03.2023): First operationalisation of Rule 114AAA (effective 01.07.2023).
• Circular 6/2024 (23.04.2024): Relief for transactions up to 31.03.2024, if PAN operative by 31.05.2024.

4. Circular 9/2025 – The Latest Relief

• Issued on 07.2025.
• Provides blanket relief where PAN becomes operative within prescribed timelines, even if it was inoperative at the time of transaction.

IV. Relief Provisions Under Circular No. 9/2025

Impact: If PAN is linked within these timelines, deductor is not treated as assessee-in-default and higher TDS rates under Section 206AA will not apply.

V. Application of Relief to Section 194-IA Transactions

This Circular directly addresses the pain points in property transactions:

1. Scenario:
   • Buyer deducted TDS through Form 26QB.
   • Seller’s PAN showed as inoperative on date of filing.
   • CPC raised demand @20% under Section 206AA.
2. Post-Linking:
   • Seller linked PAN with Aadhaar within relief timelines (before 30.09.2025 or within 2 months).
   • Circular 9/2025 allows buyer to claim that only 1% was deductible, and demand is invalid.
3. Statutory Support:
   • CBDT expressly clarified that deductor shall not be held in default if PAN becomes operative within grace periods.

VI. Correct Procedure as per Circular 9/2025

In light of CBDT Circular No. 9/2025, the correct and effective approach is as follows:

Step 1: Confirm PAN Is Now Linked with Aadhaar

• Log in to the Income Tax Portal and verify the PAN status.
• Ensure the status reflects “operative” before any further compliance step.

Step 2: File a Proper Correction Statement (Form 26QB)

• A correction statement is necessary to update the TDS rate from 20% to the correct 1%.
• Do not skip this step. CPC processes the return based on initial data, and unless corrected, the 20% default rate will continue to apply.
• This step should only be taken after PAN is operative.

Step 3: File Online Rectification Request under Section 154

• After successful filing of the correction return, submit a rectification request on the Income Tax portal.
• Mention applicability of Circular No. 9/2025, and cite the fact that PAN was operative within the prescribed window.
• Attach relevant documents if prompted.

Step 4: Wait for Demand Status Update

• In many cases, the demand becomes nil automatically after the correction + rectification is processed.
• Separate refund applications (like Form 26B) are not usually required in such cases.
• However, the outcome may vary from case to case.

Step 5: Refund of Excess TDS (if 20% already deposited)

• File Form 26B on TRACES → select “Refund due to excess deposit”.
• Submit digitally signed copy.
• If refund ≤ ₹50 lakh → AO approval; if > ₹50 lakh → Addl. CIT approval.
• Monitor refund status (typical time: 4–6 weeks).

My Professional Experience with Such Cases

In several cases received and handled by our firm, we followed the exact above steps:

• Verified PAN linkage post-transaction
• Filed correction statement updating TDS rate correctly
• Filed Section 154 rectification request

In some of these cases, the demand became nil within a few weeks of reprocessing. However, not all cases behave identically, and outcomes depend on system validations, CPC processing, and transaction timelines.

Hence, each matter should be evaluated on its specific facts before adopting a standard remedy.

VII. Compliance Advisory for Buyers & Sellers

For Buyers (Deductors under 194-IA):

• Always validate PAN before filing Form 26QB.
• Track deadlines under Circular 9/2025.
• Immediately file rectification if demand arises wrongly.

For Sellers (Deductees):

• Ensure PAN is linked with Aadhaar before property transaction.
• If already linked post-facto, share PAN operativity proof with buyer.
• Claim correct TDS credit in ITR (1% instead of 20%).

VIII. Summary Timeline of CBDT Circulars

IX. Concluding Note

CBDT Circular No. 9/2025 is a welcome clarification for thousands of taxpayers impacted by PAN–Aadhaar linkage delays. For property transactions under Section 194-IA, it removes unnecessary hardship by:

• Ensuring buyers are not treated as defaulters,
• Restoring TDS liability to the correct 1% rate,
• Allowing refund/rectification where CPC wrongly raised demands.

Practical Advice: Buyers should always perform PAN status validation before deduction, but where demands have already arisen, the Circular provides a concrete rectification roadmap.

Professional Assistance

As stated, each case is different, and the process may require review of facts, document matching, and technical filing corrections.

If you need assistance in filing the correction statement, handling the rectification, or understanding the applicability of CBDT Circular 9/2025 to your case, feel free to contact me

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Mobile: +91-9818640458
Email: varunmukeshgupta96@gmail.com